Coalitions of reciprocity and the maintenance of financial integrity within informal value transmission systems: The operational dynamics of contemporary hawala networks

Abstract

On a global scale, the estimated flow of migrant workers' remittances through formal channels now comfortably exceeds $100bn per annum, while the unrecorded flow through informal channels amounts to at least as much again. During the last few years the Informal Value Transmission Systems (IVTS) networks through which the latter are transferred have attracted a great deal of attention, both because of a gradual realisation of their scale, and because of fears that they could provide a vehicle for drug smugglers and terrorists to shift funds without fear of detection by the authorities. Recently reinforced anti-money laundering (AML/CFT) regulations aimed at curbing such illegitimate transfers are having an expensive impact on all sections of the financial services industry, no less in the formal than the informal sector. As yet, however, remarkably little attention has been paid to the basis on which the so-called‘underground’networks in the informal sector actually operate, the basis on which they organise and guarantee the security of their financial operations, let alone the extent to which they may have developed their own internal mechanisms for keeping drug smugglers and terrorist financiers at bay. In the same vein there is little awareness of the extent to which these‘informal’networks now use sophisticated communications technology, including Swift and telegraphic transfer (TT), to implement their transactions, and the extent to which the financial liquidity generated by remittances now plays a key role in supporting commercial counter-trade. Based on first-hand observations of the activities of Anglo-Pakistani hawala networks, this paper presents an empirically informed account of the operation of IVTS as highly efficient financial systems, and on this basis explores whether recently reinforced AML/CFT initiatives are fit for their purpose.